Big Fed or BigTech? The Force Behind U.S. Inequality

By Karen Petrou

  • An influential new Fed staff study asserts that increased market power is to blame for much of U.S. income inequality over the past forty years, discounting monetary policy’s impact after 2008 by looking only at inflation, not also at QE and ultra-low rates. 
  • Incorporating these factors into its construct and reviewing other research suggests a large causal role also for post-crisis monetary policy.
  • Which is worse is yet to be told, but it seems clear that market concentration, monetary policy-fueled asset-valuation hikes, and ultra-low rates exacerbate the structural factors on which the Fed continues to blame economic inequality.  Indeed, concentration and post-crisis policy are likely to be considerably more causal than the prolonged decline in educational quality, demographic shifts, increased innovation, and perhaps even regressive fiscal policy.
Continue reading “Big Fed or BigTech? The Force Behind U.S. Inequality”

In Search of Optimal, Equal Monetary Policy

By Karen Petrou

The Fed is listening.  In a recent blog post, we analyzed a brand-new database which Fed staff have constructed to capture distributional wealth effects across the U.S. economy.  Now, we turn to a brand new paper from the president and staff of the Federal Reserve Bank of St. Louis that not only recognizes the distributional impact of monetary policy – a Fed first – but tries to do something about it.  The paper proposes an “optimal” monetary policy based on a complex model with several uncertain assumptions, no conclusion about whether it would work in concert with a still-huge Fed portfolio, and nothing more than a theoretical hypothesis.  Still, it’s a start. Continue reading “In Search of Optimal, Equal Monetary Policy”

A Paradox: U.S. Growth and Who Got Left Behind

By Matthew Shaw

Absent geopolitical or market surprises, the current U.S. expansion will by summer be the longest consecutive period of economic growth on record.  That’s the good news.  The toxic side-effect of all this prosperity:  how little of it is equitably shared and how angry that makes the majority of Americans ahead of the next election.  If income and wealth growth over the 2016-2019 period tracks 2010 to 2016, then the middle class will be no better off in 2019 than 2001 even with almost a decade of aggregate growth. Continue reading “A Paradox: U.S. Growth and Who Got Left Behind”

Hard Work, Low Pay, High Costs: Life on the Ground in a “Well-Performing” Economy

By Matthew Shaw and Drake Palmer

Recent jobs data sparked excitement as news reports talked of how America is finally going back to work.  This is understandable optimism, based as it was on a concurrent rise in labor-force participation and a drop in the government’s preferred measure of unemploymentHere, we assess whether the Fed’s “solid” and “very well performing” economy has finally allowed low-and-moderate income (LMI) households to share the prosperity rapidly pooling at the very top of the income and wealth distribution.  In short, and sad to say, it isn’t – hourly pay for low-wage/low-skill workers has declined in real (i.e., inflation-adjusted) terms over the past four decades and is essentially flat since 2010.  As we noted in our last blog post, wealth concentration has soared since the financial crisis.  Even if a corner has now been turned for everyone else, it’s just a very tight one at the bottom of the equality canyon. Continue reading “Hard Work, Low Pay, High Costs: Life on the Ground in a “Well-Performing” Economy”